Fed Rate Cuts Continue, Rates Drop as Many as 14Bps

Long end of the curve falls 10+bps. Swap rates and Treasury yields extended yesterday’s decline, as rates fell another 4-14bps today. The past two sessions brought rates to multi-month lows, many tenors now 100+bps lower from their October peaks. Fed-spurred rate cut momentum continued in US markets, despite the ECB and BOE warning today that rate cuts may be distant. US equities rallied again, the S&P500, DJIA, and NASDAQ up 0.19% – 0.43%.

BOE and ECB hold rates steady, downplay rate cut odds. The BOE and ECB delivered hawkish commentary after holding rates steady today, a contrast to the Fed’s dovish tilt. BOE Governor Andrew Bailey stated, “We are more cautious because we need to see those more persistent elements of inflation, which we see in things like services prices, turn in the right direction quite decisively”, an acknowledgment that UK inflation remains the highest of G7 nations. Though the ECB has made significant progress in their fight against inflation, they too dismissed imminent rate cuts; President Lagarde argued “We did not, did not discuss rate cuts at all, no discussion, no debate on this issue.”

Lower gas prices fuel elevated November consumer spending. November retail sales rebounded from weak levels in October, as a decline in gasoline sales gave consumers more money to kick off holiday spending. Headline retail sales advanced 0.3% MoM and 0.6% excluding gas and auto. Viewed alongside the persistently strong labor market, the rise signals that declining inflation is not yet coming at the cost of significantly worse economic conditions.